Town finance officials have announced a planned January “refunding” or refinancing of debt on a number of municipal bond offerings which they hope will generate at least $925,000 in interest savings.

While those projected savings are based on interest rates and the financial formulary in place today, Town Finance Director Robert Tait told The Newtown Bee that there are no present indicators that interest rates will fluctuate significantly.

“We’re not borrowing, but we are swapping one debt for another that is less expensive,” Mt Tait said. “This is not going to show up as revenue, but it will effectively lower our debt service budget, hopefully by about $925,000.”

The practice the town plans to follow, called advanced refunding, provides an opportunity to exact savings even if the bonds involved have not reached their sale or call date, the finance director explained.

“What we’ll do is refund the bonds and put enough money in an escrow account to pay them off once they reach their call date,” he said. “This is different from current refunding, which is refinancing bonds on or after their call date.”

The difference between the refund amount and the amount required in escrow is the planned $925,000 savings.

Smoothing Debt Trend

Once the savings have been achieved, the finance director, with the approval of the Board of Finance, will distribute those savings across several fiscal cycles to help maintain the town’s self-imposed nine percent debt cap.

“This will help keep that debt service budget flat over the next five years,” Mr Tait said. “We were already planning to keep it flat, but now it be flat and lower.”

The ability to keep the debt cap level while still funding several robust capital projects in the coming five years can happen because the 2015/16 fiscal cycle will see a number of existing bond issues retired — essentially paid off — significantly reducing Newtown’s outstanding debt load.

This was an occurrence finance officials and town leaders have been anticipating since 2009.

“There was already a $2.5 million drop in debt from retiring bonds in 2015/16,” Mr Tait said. “And we’ll be planning on paying off another $2 million in bonds that year as well.

“When the opportunity arises, the town will pay off as much debt as we can — the rating agencies will love that,” he added. Those rating agencies, Moody’s Investors Service and Standard & Poor’s, will be looking at town financials ahead of the planned refunding, at which time, there is a chance Newtown could see its Moody’s bond rating increase to meet its S&P rating of AAA — the equivalent of a perfect credit score.

Finance Board Chairman John Kortze said that according to Newtown’s bond consultant Barry Bernabe, the S&P bump to AAA is calculated to increase the benefit of the refunding substantially.

“We tried to take a look at this the last time we did a refunding, but this $900,000 provides a much better picture of the savings according to Barry’s calculations,” Mr Kortze said. “If Newtown did not have its AAA [S&P] bond rating, our projected refunding savings would have only been $750,000 — $150,000 less than what we expect to realize in January.”

Saving More, Spending Less

Mr Kortze said it would be logical for taxpayers to think that if the town is saving more, it is spending more.

“But the fact is, we are borrowing less as an overall percentage of the budget,” Mr Kortze said, noting that despite a new request for $10.5 million in capital bonding to demolish three of the largest derelict buildings at Fairfield Hills, the town’s debt cap will remain at or below nine percent — a historic low.

In other financial news, Mr Kortze said anticipated growth in the grand list, particularly tied to new commercial development in town, will generate funds to infuse the town’s fund balance without tapping taxpayers to generate the savings.

“Once the buildings that were on the drawing board last year begin to go up, the properties begin to generate higher assessments and that is tied to added net tax revenue,” Mr Kortze said.

First Selectman Pat Llodra echoed the enthusiasm of her finance experts.

“Over the years our taxpayers have benefited greatly from our ability to refund our bonds whenever we could do it,” the first selectman said. “”It’s in our best interest to pursue every opportunity to generate savings on our capital borrowing.”

Mrs Llodra also pointed out that with its S&P AAA bond rating, Newtown continues to be in an advantageous position in the bond marketplace every time the town goes out for new borrowing or refunding.

Regarding the town’s shrinking debt cap, Mr Kortze said, “When you manage finances, it makes things like this more achievable. Just a few years ago we were trending at or above ten percent in debt, but now were trending at or below nine percent, even though we’re still looking at a number of large future capital projects.”